Authorised share capital means the maximum value of securities that a company can legally issue. Value of company’s authorised share capital including number of shares and value per share is specified in the capital clause of memorandum of association or MOA while incorporating a company in India.
Out of the authorised share capital, company can issue shares to their subscriber which is called issued share capital. But a company cannot issue shares more than the authorised share capital unless and until it has been approved and increased by the shareholders and due procedures as required by company law are not followed.
Authorised share capital can be changed after incorporation with the approval of shareholders in an extra ordinary general meeting.
Today we will be discussing how to increase authorised share capital of a company after its incorporation.
Process of increase in authorised share capital is governed by section 61 read with section 13 and 14 of Companies act 2013.
Section 61 has a precondition that to increase authorised share capital, authorisation in article of association is a must. For this reason, in the first step, we need to check company’s article of association or AOA to make sure that it has a provision authorising the company to increase its authorised share capital.
If you did not find such provision then before increasing authorised share capital, company’s article of association must be altered in accordance with the provisions of section 14 of the Companies Act 2013 to insert a provision authorising to increase authorised capital.
In the second step, call a board meeting with following agenda;
- To get approval of directors for increase in authorised share capital
- To fix date, time and place for holding extra ordinary general meeting to get approval of shareholders for alternation to authorised share capital clause of memorandum of association by way of ordinary resolution (section 61 of Companies act 2013).
- To approve notice of extra ordinary general meeting along with agenda and explanatory statements.
- To authorise a director or company secretary for issuing notice of extra ordinary general meeting.
In the third step, you are required to hold extra ordinary general meeting on the date, time and place as mentioned in notice and pass ordinary resolution to increase authorised share capital of the company.
In the fourth and last step to increase authorised share capital of a company, notice has to be filed with registrar of companies in E-form SH7 within 30 days of such increase along with the fee.
Following attachments are to be attached with e-Form SH7 before filing with ROC;
- Notice of extra ordinary general meeting
- Certified true copy of ordinary resolution passed in extra ordinary general meeting
- Altered memorandum of association
After filing e-Form SH7 with above attachments, registrar of companies will check the e-Form and if satisfied, approve the increase in authorised share capital of the company.
Sample board resolution for increase in authorised share capital
“RESOLVED THAT pursuant to the provisions the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed there under, the consent of the Board of Directors of the Company be and is hereby accorded, subject to the approvals of shareholders in the General meeting, to increase the Authorised Share Capital of the Company from existing Rs. 10,00,000 (Rupees Ten Lakhs) divided into 1,00,000 (One Lakhs) Equity Shares of Rs. 10/- each to Rs. 15,00,000 (Rupees Seventy Fifteen Lakhs) divided into 1,50,000 (One lakhs fifty thousand) Equity Shares of Rs. 10/- each by creation of additional 50,000 (Fifty Thousand) Equity Shares of Rs. 10/- each ranking pari passu in all respect with the existing Equity Shares of the Company.”
Sample board resolution for alteration to capital clause of memorandum of association
“RESOLVED THAT pursuant to the provisions of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed there under, the consent of the Board of Directors of the Company be and is hereby accorded, subject to the approvals of shareholders in the General meeting, for substituting Clause V of the Memorandum of Association of the Company with the following clause.
V. The Authorised Share Capital of the Company is Rs. 15,00,000/- (Rupees fifteen Lakhs) divided into 1,50,000 (One Lakhs fifty Thousand) Equity Shares of face value of Rs. 10/- (Rupees Ten) each.”
Sample resolution to be passed in the extra ordinary general meetings of shareholders
Increase in Authorised Share Capital
SPECIAL BUSINESS
To consider, and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:
“RESOLVED THAT pursuant to the provisions of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed there under, the consent of the members of the Company be and is hereby accorded to increase the Authorised Share Capital of the Company from existing Rs. 10,00,000 (Rupees ten lakhs) divided into 1,00,000 (One Lakhs) Equity Shares of Rs. 10/- each to Rs. 15,00,000 (Rupees Fifteen Lakhs) divided into 1,50,000 (One Lakhs Fifty Thousand) Equity Shares of Rs. 10/- each by creation of additional 50,000 (Fifty Thousand) Equity Shares of Rs. 10/- each ranking pari passu in all respect with the existing Equity Shares of the Company.
Alteration in the Capital Clause of Memorandum of Association
To consider, and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:
“RESOLVED THAT pursuant to the provisions of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed there under, the consent of the members of the Company be and is hereby accorded for substituting Clause V of the Memorandum of Association of the Company with the following clause.
V. The Authorised Share Capital of the Company is Rs. 15,00,000/- (Rupees Fifteen Lakhs) divided into 1,50,000 (One Lakhs Fifty Thousand) Equity Shares of face value of Rs. 10/- (Rupees Ten) each.”
When increasing the authorized capital of a Pvt Ltd Company, does one need to take into consideration of the retained earnings to re-value the value per share?
Is it a violation of FEMA regulations if the company increases is Authorized Capital and subsequently raises the paid up capital at original value per share and leave the retained earnings untouched?
Your’s commentary on process of alteration of authorized share capital is very good but you can this is improve this commentary.
Whether complete amended moa as per new format as per companies act, 2013 is required?